What is a Socialist Economic System & a Socialist Economic Country

The socialist economic system is an economic system that makes the government a party that plays an important role in controlling and regulating all economic activities. In this system, the government has full power in planning, making economic decisions, and managing all policies aimed at distributing people’s welfare, as well as providing equality in dealing with all people, whether poor or rich.

The formation of a socialist economic system cannot be separated from the thoughts of Karl Marx and Frederic Engles. The two men began to introduce this economic system through his book entitled The Communist Manifesto . In the book they provide several criticisms of the implementation of the capitalist economic system. Where according to them the economic system raises many internal problems of the state. So it is not feasible to be implemented in a country.

The capitalist economic system can cause problems between the owners of capital and the workers. In addition, this economic system also presents individuals who always want to compete in economic or production activities. Economic activities in the capitalist economic system are also not supervised by the government. So, the private sector has full control over their business or business.

Then, the concept of socialism that was born by Karl Marx and Frederic Engles was a first step against the capitalist economic system that has been widely implemented in western countries. The necessary step in replacing the concept of capitalism is for the government to take over all production resources that were previously controlled by individuals or the private sector.

In a socialist economic system, the government has a significant role in various economic activities. Where the government limits the freedom of individual rights in owning production resources.

If the government is seen in every economic activity, it will be easier to monitor and also regulate the running of the existing economic system. In addition, the government can also prevent all forms of unhealthy competition and impact on social inequality.

What is a Socialist Economic System?

The socialist economic system is an economic system whose implementation is regulated directly by the government. In this system, all economic activities are fully the responsibility of a state or central government.

Therefore, the socialist economic system is often referred to as a centralized economic system. Where everything must be regulated by the government and commanded from the central government. The government plays a full role in overseeing all economic activities. Learn more in depth through the Institutional Economics book below along with examples of cases in the transportation sector.

History of the Socialist Economic System

The origins of the socialist economic system started from the criticism of the capitalist system. In the 19th century, the bourgeoisie ruled the country. This happened under the banner of the capitalist system in Europe.

They make the state as a tool or force to regulate economic and political and social organizations to fulfill their own interests.

Then, the bourgeoisie also gained the legitimacy of the church to exploit the workers. The emergence of the industrial revolution at that time had a blessing for factory owners. However, this actually had a negative impact on the workers. Where they become increasingly poor and oppressed. Indeed, not everyone likes the bourgeoisie in acting in such a way. Then, those who do not like the attitude of the bourgeoisie, try to take revenge.

The laborers and workers demonstrated and went berserk. They express their distaste for the self-serving bourgeoisie. This is what prompted Karl Marx to criticize the capitalist economic system which was deemed incompatible with social aspects.

But actually, this kind of condition has given rise to various socialist ideas and thoughts. However, of the many socialist experts, the thoughts of Karl Marx are considered more influential. Karl Marx said that if private property rights were abolished, then society would not be separated into several groups, ranging from high to low class. According to him, capitalism is not worthy of being placed in this world.

Therefore, various revolutionary efforts must be made to abolish capitalism. Where the means of production must be regulated and controlled by the state. It aims to protect the people.

Characteristics of a Socialist Economic System

If a country implements a socialist economic system, then the role of the government will appear which regulates and controls all economic activities and ownership of resources. This means that the government is the only economic actor and center of power that has an important role.

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To find out whether a country implements a socialist economic system, you need to know its characteristics. The following are the characteristics of a socialist economic system .

  1. The government regulates all production resources and individual or private parties do not have the rights of authority and freedom in owning existing resources.
  2. There is an assumption of equality of social status, between the poor and the rich are equally entitled to benefit in doing business.
  3. In this economic system, the government is the only party with power in planning and deciding matters related to the economy.
  4. There is no free competition so that the existence of entrepreneurs becomes less in the country.
  5. The government is the center in making decisions on all economic activities. Starting from foreign trade, consumption, distribution, and also investment.
  6. The creation of an equal distribution of social welfare as a whole.
  7. The amount of production is limited, because everything is related to production capabilities and also market needs.

Advantages and Disadvantages of the Socialist Economic System

As explained above, the socialist economic system is a form of criticism of the existence of a liberal economic system which led to the emergence of a capitalist society. According to adherents of socialism, the implementation of a capitalist economic system can cause some adverse effects that are felt by the government and the grassroots.

Therefore, socialists want to continue to feel they have a role in all economic activities. One of them is having the duty to supervise and participate in deciding a policy. That way, the results of all economic activities can be felt by all groups, both the government and all levels of society.

Advantages of the Socialist Economic System

  1. There are health and educational facilities for all levels of society at a more affordable cost.
  2. There is social equality for all individuals, from the rich to the poor.
  3. Elimination of monopolistic practices in the market.
  4. The creation of equal distribution of income.
  5. Inflation is easier to handle because it is controlled directly by the government.
  6. The government has an important role in conducting and supervising every economic activity.

Disadvantages of the Socialist Economic System

  1. Economic growth is hampered, because in this economic system only the government is the only market actor.
  2. The number of entrepreneurs is getting smaller due to limited access to resources.
  3. The spirit of innovation and creativity of business actors is reduced. This happens because there is no reward for their creativity.
  4. There are quite high taxes
  5. Each individual is not given the freedom to own existing resources
  6. The availability of products and services is very limited.


Countries Adhering to the Socialist Economic System

The ongoing cold war that occurred in 1947, made the world powers at that time split into 2 blocks, namely the eastern block and the western block. The eastern block is a block made by the Soviet Union and other European countries, while the western block is a collection block between NATO and the United States.

With regard to the economic system, the western and eastern blocks have different understandings when establishing a policy regarding the adopted economic system.

The western block is known for its liberal economic system or commonly known as capitalist society. Meanwhile, the eastern bloc established the notion of a socialist economic system that could create a communist society.

When viewed from the ideology and objectives of the socialist and liberalist economic systems have conflicting aspects, even though in essence all of these systems have advantages and disadvantages. Until finally the implementation of the two economic systems can create countries that have very strong and stable economic strength.

The following is the implementation of a socialist economic system in 3 countries which are considered to be more socialist than the others.

1. China

The Chinese government has the most influential authority over several policy decisions and economic activities in China.

However, for some parts of the Chinese government it has exercised capacity over policies that it had previously implemented, for example health care facilities which are currently not subsidized by the government.

China’s economy initially adhered to a socialist economic system, but slowly the economy underwent many changes along with several policy guidelines aimed at reviving economic stability.

At this time, China’s economy has adopted a liberal economic system or what is commonly called capitalism, you can see this from the various ways that the government has used to open international free markets.

Despite the liberal elements, the government of love still labels its own country as one of the countries that support socialism. From the model of the economic system, in fact China has abandoned the pure form of the socialist system.

You can see the form of socialism from the number of companies in China, around 70% are state-owned enterprises and 30% are owned by the private sector. The progress of the number of private companies is increasing every year. That is what shows the existence of socialist and liberal elements.

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With the transformation of the determination of the economic system, it will have a positive influence on the economy in China, namely positioning China as part of the second country with the largest economic development in the world after America.

2. North Korea

The socialist economic system in North Korea can be seen from the government’s complete domination and control of all economic activities.

These indications show that North Korea is very closed and it is not easy to open up foreign investment in the country, and it can be said that the economic system in North Korea is more socialist than that of China.

It can be said that the establishment of a socialist economic system in North Korea was not quite successful, considering that until now the country’s economic development has experienced setbacks and is also not better than that of its neighboring country, namely South Korea.

3. Cuba

If you know the characteristics of a socialist country so that all of these characteristics are similar, everything can be seen in Cuba. For example, the influence of the government’s role in controlling all economic activities of the country, the existence of health facilities established by the government for its people, and so on.

Similar to North Korea, Cuba also does not have a stock exchange market so that the Cuban state implements a closed trading system from other countries and limits foreign investment.

The Basic Concept of Socialism

The term socialism or also called socialist can refer to several things related to ideology or ideological groups, the economic system to the state. The term began to be used since the early 19th century.

In English, the term was first used to refer to members of Robert Owen in 1827. In France, the term refers to members of the Saint-Simon doctrine in 1832 which were made famous by J. Regnaud and Pierre Leroux in l’Encyclopédie Nouvelle.

The term socialism is often used in a variety of different contexts by various groups, but almost all agree that the term stems from the upheaval of industrial workers and farm workers in the 19th to early 20th centuries which stems from the principle of solidarity and strives for an egalitarian society that through the economic system according to him can serve the community rather than just a handful of elites.

The basic concept of socialism has in fact been developed by Plato in his book Republic. Plato illustrates that the government does not own personal wealth, all that belongs to the state, both production and consumption, is distributed equally among all the people in that country.

The authority intended to create people’s welfare is clearly illustrated in Plato’s concept. This concept can be used as a basis for the idea of ​​the emergence of socialism in Europe at that time.

In addition, the socialist economic system also has various influences, both through positive and negative aspects because the community is not fully authorized, and the government has a very important position in this economic system.

Therefore, the positive influence of this socialist economic system is that equal distribution of welfare is easier and faster to achieve because there are several government interventions in market mechanisms, the economy is more stable under social life so that it is more controlled and calm, and there are no poor and rich people because of economic equality established by the government

Meanwhile, from a positive point of view, the socialist economic system also has a negative influence, namely economic development is declining because it focuses more on development than equity. So that infrastructure development becomes slow, personal limitations to carry out business activities are limited by the government. That way, the community also functions to assist the government in efforts to develop the economy.

Even if it’s in a small way, for example doing small business and carrying out your obligations to the government properly. This is because economic development has an influence on economic progress in a country.

Those are some explanations about the socialist economic system . The economic system in a country does have its advantages and disadvantages. Therefore, a country will choose an economic system that suits their capacity and needs. This is intended so that all people and the government can advance the country’s economy well.

For Sinaumed’s who want to study economics more deeply, sinaumedia as #FriendsWithoutLimits will recommend several books that can be used as reading references. Here are the economics books that the author recommends.

Author : Laila Nur Azizah